I bought a home at a foreclosure sale with cash borrowed from my business. I need to put as much money back in as I can, and I need to do this as soon as possible. How soon after buying a home can I refinance it and get my cash back?
There are actually a few issues here; some need to be considered before others. So here we go:
- Is the property a home for you to live in, a vacation place or a rental? This determines what sort of refinance products you'll be able to choose from. For investment property or a second home, you'll need to refinance with conventional (non-government) mortgage lenders, and you'll be able to cash out a maximum of 75% of the purchase price. If the house is a primary residence, you may be able to refinance up to 85% with FHA or up to 90% with a VA refinance mortgage (eligibility guidelines apply).
- Do you want fast cash or more cash? If eligible for an FHA cash-out refinance, you can put up to 85% of the home's purchase price back in your pocket, but you'll need to own the property for at least six months before you're allowed to do it. With Fannie Mae's Delayed Financing Rule, however, you'd be able to refinance immediately and get up to 70% of your money back.
- What if the home's value has increased? In general, if you refinance within a year of buying a home, mortgage lenders base your loan amount on the lower of the purchase price or the appraised value. So even though you got a 15% discount by buying on the courthouse steps and paying cash, you won't get to pull that extra equity out when you refinance quickly. If you want to maximize your refinance proceeds, wait a year, and your loan is based on the home's appraised value.
This is a hot issue with investors these days because the best deals are generally unavailable to those who need to line up home loans. Investors need to recover as much of that cash as quickly as possible, so that they can turn around and buy more property.